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Auto Insurance Mistakes: 5 Things To Avoid When Selecting Your Policy

Updated: February 21, 2018

Getting the right type of auto insurance policy is important for anyone who owns a vehicle.

Simply getting a basic auto insurance policy and not worrying about the details is a sure road to overpaying and having limited coverage.

It is best for individuals to properly understand the auto insurance policy they are signing.

This ensures that they do not misunderstand the levels of coverage present in the policy, which can lead to problems in the future.

Here is a look at five common mistakes that everyone must avoid when they are selecting an affordable car insurance policy.

Not Fully Understanding Auto Insurance Coverage

The biggest mistake a lot of insurance buyers make is that they do not understand the policy they are purchasing. Getting affordable auto insurance is not possible if you have no idea what is in your policy.

The biggest confusion comes in terms of understanding the different sub-categories in car insurance rates.

Getting affordable car insurance is NOT always about paying the lowest price. It means getting the best possible coverage for the lowest possible price. When comparing two policies, the one with a higher premium may actually be “cheaper,” because it offers much more coverage.

The biggest confusion comes in terms of understanding the different sub-categories in car insurance rates. For example, a lot of people get confused about the meanings of liability, comprehensive and collision insurance.

It is not uncommon for people to think comprehensive insurance refers to a policy that covers everything, when in reality this type of insurance only protects against damage to a car when it is not being driven.

Similarly, people do not realize that liability insurance only pays for the other party’s damage and medical expenses, while you need collision coverage to protect your own vehicle.

Refusing to Shop Around for Auto Insurance

Another common auto insurance mistake is that a lot of individuals do not shop around for the best auto insurance policy. Getting affordable auto insurance with proper coverage is only possible if you speak with five or ten reputable auto insurance companies in your state.

Shopping around is not only recommended when first getting auto insurance, but every few years in order to continuously pay low rates.

By shopping around, the buyer is not only looking at the different rates on offer, but they get an understanding for how much coverage each company offers for those rates.

For example, company A may offer a $500 per year policy, with company B offering $600 per year rates. But if company B’s policy includes liability, comprehensive and collision coverage, while company A’s policy is only liability insurance, the second policy is much better value for money.

Shopping around is not only recommended when first getting auto insurance, but every few years in order to continuously pay low rates.

Companies always offer discounts on car insurance rates, and changing your policy provider every few years lets you take advantage of these discounts.

Drastically Reducing Coverage for Lower Auto Insurance Rates

Depending on the type of vehicle you own and how much money you make every year, it is important to not rush into drastically reducing the level of auto insurance associated with your primary vehicle.

Removing a significant portion of coverage without taking the time to consider the ramifications is a mistake.

For example, anyone who has an auto loan for their car knows that comprehensive and collision coverage are mandatory. This also means that a lot of people immediately remove these two types of coverage when the loan is completely paid off.

Removing a significant portion of coverage without taking the time to consider the ramifications is a mistake.

If an individual can simply not afford the higher insurance premiums, it makes sense to remove all non-essential forms of auto insurance from the policy. However, getting rid of too much coverage in a bid to save a few hundred dollars a year is a mistake.

While you may pay less for premiums by removing most of the coverage on your vehicle, it also means that you will pay a lot out of pocket for damage expenses when you get into an accident.

Not Considering Comprehensive and Collision Auto Coverage

It is a huge mistake for people with new or valuable vehicles to ignore collision and comprehensive coverage. While these policies do increase your premiums a fair bit, they also provide a lot of protection for the vehicle if you cause a car accident.

Collision coverage pays for damage to the car from an accident you caused. Comprehensive coverage pays for damage that occurs when the car is parked somewhere.

If someone has a cheap car that is many years old, they may not want collision and comprehensive coverage. This is because the damage from a car accident may not set them back very much money.

In contrast, an individual with a new car that has a value of $25,000 needs collision and comprehensive coverage. This is true even if the car was bought entirely with your own money.

Collision coverage pays for damage to the car from an accident you caused. Comprehensive coverage pays for damage that occurs when the car is parked somewhere.

If your car is valuable, these two forms of insurance coverage will save you thousands of dollars in out of pocket expenses in the event that something happens to the vehicle.

Constantly Choosing Low Deductibles

When you first get an auto insurance policy for a new vehicle, it is sensible to find the right balance between insurance premiums and deductibles. This does not mean constantly picking the policies that have drastically low deductibles attached to them.

If your car is now valued at less than $2,000, you do not need to keep selecting low deductibles that come with high premiums.

It is especially important to consider higher deductibles if you have a car with a drastically reduced value. For example, car owners who have the same car for ten years know how it eventually loses a lot of its value.

If your car is now valued at less than $2,000, you do not need to keep selecting low deductibles that come with high premiums. This is because your car is not worth the high premiums anymore.

It is better to get a high deductible, because the cost of repairing this car (or replacing it altogether) is much lower than it was when you first bought the car.

Talk with your insurance agent in detail about deductibles on your policy, especially if you have a vehicle that is a few years old and does not have the highest market value anymore.